Shinzo Abe 2.0:Japan's economic hope?

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Japan's main opposition Liberal Democratic Party (LDP) leader Shinzo Abe on the campaign trail in Fukushima on December 4.

Story highlights

Some investors believe second coming of Shinzo Abe will be good for Japan equity markets

Collett: 'Investors pricing in monetary easing' after Abe's support for such measures

Abe expected to push back harder against China than his predecessors

Collett: Abe may want to destabilize yen to remove its popularity as safe haven

Shinzo Abe, Japan's one-time prime minister, may get a second chance at the job. After serving as the country's leader from 2006 to 2007, his Liberal Democratic Party looks set to return to power this weekend in national elections.

Some investors believe the second coming of Abe will be good for Japan's equity markets.

"Investors are pricing in...much greater monetary easing," said Ben Collett, head of Japanese equities at Louis Capital Markets in Hong Kong.

Asia's first and second largest economies have been embroiled in a months-long trade dispute because of rival territorial claims in the East China Sea. Both China and Japan lay claim to a small grouping of islands, known as the Diaoyu Islands in Chinese and the Senkaku Islands in Japanese. On September 11, Japan nationalized the islands causing an uproar in China.

In retaliation, Chinese consumers slowed their purchases of Japanese products. In October, Japan revealed its September exports to China fell more than 14%.

A stronger stance against China may rattle trade ties even more, Collett said. And that may also weaken Japan's currency, the yen.

"In fact, Abe's comments may be intentionally aimed at destabilizing sentiment on the yen," Collett added, noting that "anything that removes popularity of the yen as a safe haven" will be good for exporters.

Japan's economy relies heavily on exporters -- big-name brands that include well-known names Toyota, Sony and Panasonic. A weaker currency means Japan's exporters earn more yen when they repatriate overseas profits back to Japan. Since mid-November, the yen has weakened 5.2% as Abe's chances of returning to power have risen.